South Asia loses growth lead, can regain through action
Countries should address growth constraints with policies and reforms
After leading global growth for two years, South Asia has fallen to second place, after East Asia and the Pacific. The region’s slowdown is due to both temporary shocks and longer-term challenges. Regional economic growth is expected to slow to 6.9 per cent in 2017 from 7.5 per cent in 2016, but growth could rebound to 7.1 per cent in 2018 with the right mix of policies and reforms.
The just released twice-a-year South Asia Economic Focus (SAEF) finds that the slowdown in South Asia has mostly been driven by internal factors, most notably in India, such as a decrease in private investment, and an increase in imports and government spending. This edition, Growth out of the Blue, explores the potential of night-time light satellite imagery to improve measurement and understanding of economic activities.
While growth rates in South Asia largely remain robust given the economic shocks that some countries in the region have faced, countries should continue to actively address their growing trade and fiscal deficits,” said Annette Dixon, the World Bank South Asia Region Vice President. “With the right mix of policies to respond to challenges, we remain confident that South Asian countries can accelerate their growth to create more opportunities and prosperity for their people.”
Given its weight in the region, India sets the pace for South Asia. Its Gross Domestic Product (GDP) growth is expected to slow down to 7 per cent in 2017, due to surging imports and declining private investment along with the effects from withdrawing large amounts of banknotes and the introduction of the Goods and Services Tax (GST). However, India’s growth is expected to rebound to 7.3 per cent in 2018.
Pakistan continues its upward growth performance with economic activity expected to accelerate to more than 5 per cent this and next year, if deficits are well-managed and external stability is maintained.
Likewise, Nepal has seen an economic rebound after the earthquake and trade disruption in 2015. In Bangladesh, industrial production continued to accelerate, export growth slowed, and fiscal deficits increased. Overall, South Asian economies stand to gain from continued recovery in advanced economies, which are their largest export markets.
The report also highlights that South Asia was once at the cutting edge in economic measurement and analysis, pioneering techniques such as the use of household surveys. With the rise of big data, traditional ways to measure economic phenomena like prices and GDP can be supplemented. To improve economic measurement in South Asia, a greater reliance on big data may help, but a clear agenda toward stronger statistical systems is a necessity.
“We’re very excited about the potential of adopting new sources of data to improve our understanding of economic activity. Nightlight data, for instance, is easy to obtain, regularly updated, and very informative,” said World Bank South Asia Region Chief Economist Martin Rama. “In this report, it allows us to shed light on recent episodes and to provide a new perspective on how policies and shocks impacted the region, down to the local level.”